GST on vacant commercial IP if lease is put in place prior to settlement?

[Trogdor]

Hi,

I will get some (paid for) professional advice on this if this deal does seem to have legs, but at this early stage wondering if anybody has experience with this topic...

If I were to exchange contracts for a vacant commercial IP which remained vacant at settlement, obviously not a going concern and GST would need to be payable.

However, if its vacant at exchange of contracts but we can find a tenant who signs a lease prior to settlement, can I set up the contract of sale such that no GST would be payable (but obviously if I fail to find a tenant I would then need to "top up" with GST)?

I've read a lot online but cant seem to find an answer - more just the basics on if the no-GST exemption applies -> i.e. agreement for a going concern needs to be made in writing, needs to continue up intil the time of supply, time of supply is usually settlement, etc...

Thanks.

 

[Player]

Hey Trogdor,

I am no expert, however my understanding is that it would not be a going concern as the tenant was not running business when it was for sale.

Indeed, the situation of leasebacks (from selller being original owner occupier) where seller signs lease (upon sale) and continues to trade may also be seen as not being a going concern. I have seen leasebacks advertised for sale with GST implicated in the purchase price.

As you mention in your post, seek professional advice. If deal stacks up for you, you will need to register for GST in that entity and claim it back on your first BAS. Of course you need to stump up the whole amount up front first and that may thwart lending LVR's or your out of pocket cash position till you claim it back.

 

[Trogdor]

Thanks Player, thats very helpful indeed - esp the point re: sale and leaseback - I did some googling and various accounting / law firm online resources confirm this point.

Leaving aside the valuation points of vacant possession vs lease in place and cashflows of that lease - I wonder how much having to pay GST does or does not shrink the buyer pool (due to having to in effect have an additional 10% cash on hand - even if only for a few months - reducing LVR) - and in turn market price of the asset due to fewer potential buyers. Anybody have thoughts on this?

 

[bene313]

Another one Trog... Please let us know how it goes.

 

[boods99]

I wonder how much having to pay GST does or does not shrink the buyer pool (due to having to in effect have an additional 10% cash on hand - even if only for a few months - reducing LVR) - and in turn market price of the asset due to fewer potential buyers. Anybody have thoughts on this?

Get around this by nominating in your offer that settlement is to occur on the last day of a quarter, so the GST component can immediately be reclaimed on the BAS. should be only be 2 weeks max if you do it straight away.

Boods

 

[Trogdor]

Get around this by nominating in your offer that settlement is to occur on the last day of a quarter, so the GST component can immediately be reclaimed on the BAS. should be only be 2 weeks max if you do it straight away.

Boods

Thanks boods. Thats a useful tip.

You still need to find the extra $$ though - the problem for many would be finding the cash rather than tying it up for 2 weeks or 2 months....

 

[Trogdor]

Another one Trog... Please let us know how it goes.

Will do.

Wasnt planning on it but something came up.... Lets see how it all goes and if a deal can be reached...!

 

[TheShuffler]

You also pay stamp duty on the GST INCLUSIVE price...nice work OSR!!

 

[Trogdor]

You also pay stamp duty on the GST INCLUSIVE price...nice work OSR!!

Yep, its an absolute joke !!

 

[rikkum]

Hi first post so I hope I get this right.

Generally when a commercial property is sold with a lease in place you can rely on the going concern clause to get around GST should both parties agree to do so.

The 'business' in question is the letting of commercial property. The nature of the tenant's business doesn't come into play.

Also, don't forget to double check that the going concern clause in the contract is complete. Just ticking the box is not sufficient (which happens a lot). It's also a good idea to keep additional evidence to show that the property is in fact leased. For example copy of lease, rental statements etc.

EDIT: re-read your question and yes, I am of the opinion that a lease agreement in place is sufficient even though the lot is not physically tenanted.